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The Mortgage Bankers Association (MBA) has just announced that new mortgage applications have slumped again despite some of the lowest interest rates in history — a drop in demand that bodes ill for the entire housing market.
Moreover, the slumping market can only be aggravated by the foreclosure fraud crisis that has burst onto the scene in recent days.
Some people thought Bank of America’s decision this week — to restart its foreclosure machine in 23 states — ended that crisis. But it didn’t.
Right now, as I write these words, the White House is meeting with regulators and administration officials to review federal investigations into the foreclosure fraud crisis. Not a good sign!
Also right now, 50 state attorneys general are plowing ahead with their investigations of the nation’s largest mortgage lenders, including Bank of America, JP Morgan and many others.
Judges in Florida and other high-foreclosure states say they’re expecting a flood of legal challenges from defaulting homeowners who see this crisis as a golden opportunity to keep their homes.
Will these legal issues ALONE cause the collapse of the mortgage market? Mike Larson tells me the answer is “No, but it’s going to cost the banking industry billions MORE dollars and drag the crisis out even LONGER.”
And make no mistake: The mortgage and foreclosure crisis is already big enough even WITHOUT this additional confusion.
How big?
The most critical measure of the crisis is the percentage of homeowners that are late in making their mortgage payments — the mortgage delinquency rate … and it’s astounding how much it has changed.
A couple of years ago, if you asked government officials for an estimate of how much the delinquency rate might rise, their response would go something like this:
“Subprime mortgages? Sure, subprime mortgages will go bad. But prime mortgages? Heck no! They’re solid. You’ll NEVER ever see the prime mortgage market experience similar difficulties.”
Famous last words!
This year, the delinquency rate on all U.S. mortgages, including all prime mortgages, has soared to a level that’s higher than that of subprime mortgages at the time government officials first began making such pronouncements.
Indeed, the MBA reports that the delinquency rate on all U.S mortgages for one-to-four residential properties — including mostly prime mortgages — is 9.85 percent of ALL loans outstanding. In other words, nearly one in ten mortgages is delinquent — an astronomical level.
Worse, this figure reflects strictly existing mortgages with payments past due. It does not include loans in the process of foreclosure.
How bad is that number? Well, the MBA reports that the percentage of loans undergoing foreclosure is an astounding 4.57 percent — more than TRIPLE the level which would be normal for an economic “recovery.”
Thus …
If you combine the loans in foreclosure plus loans past due, the all-inclusive bad mortgage rate is at a Depression-era level of 13.97 percent.
How much money does that involve?
According to the Federal Reserve’s Flow of Funds, the total amount of home mortgages outstanding in the U.S. is $10.6 trillion. With 13.97 percent of those going bad, that means nearly $1.5 trillion in U.S. mortgages are still in distress.
And that’s even after Bernanke’s Federal Reserve has pumped in a similar sum by buying up mortgages securities!
Some Action Items for You
First, when you hear official pronouncements that seek to bury this crisis — or Wall Street pundits that seek to pitch you on new real estate investments — run the other way. With nearly $1.5 trillion in mortgages still sinking — and probably much more in the pipeline — that’s grossly premature.
Second, we should think seriously about the perspective Claus Vogt and Roland Leuschel provide in their soon-to-be-published book I told you about in Monday’s edition. Apropos to the mortgage crisis, they write:
“Now, you can see, in the brightest of lights, the full scale of the Armageddon brought about by the wild monetary expansion engineered by Greenspan. And now, you can also see the true genesis of the even wilder monetary escapades under Bernanke. It is obvious that the path to mortgage mayhem and the road to inflationary policies are interlinked.”
Third, you now have at least TEN opportunities to convert this otherwise-scary situation into true wealth.
Right now, for example, my own $1,000,000 portfolio is enabled to invest in FIVE different asset classes — stocks, bonds, precious metals, other commodities and currencies.
Moreover, I can invest in TWO different directions — to go for profits in both UP markets or DOWN markets.
That gives me great flexibility — TEN entirely different types of market environments no matter what the future may bring. All in a single, ordinary brokerage account without ever trading options or futures!
Just bear in mind that timing is of the essence. Key markets, like gold, currencies and commodities are in a temporary corrective phase this week. So Monty is getting ready to send out a whole new set of landmark recommendations within the next few days.
Good luck and God bless!
Martin
